Kurwa v. Kislinger: California Supreme Court Holds No End-Run Around the "One Final Judgment Rule" By Means of Voluntary Dismissals

Under California's "one final judgment rule," a judgment that fails to dispose of all the causes of action pending between the parties is generally not appealable. (Code Civ. Proc., § 904.1, subd. (a); Morehart v. County of Santa Barbara, 7 Cal.4th 725, 740-741 (1994).)

In Kurwa v. Kislinger, No. S201619 (Oct. 3, 2013), the California Supreme Court had to resolve the issue of whether an appeal may be taken when the judgment disposes of fewer than all the pled causes of action by dismissal with prejudice, and the parties agree to dismiss the remaining counts without prejudice and waive operation of the statute of limitations on those remaining causes of action. The Court unanimously held that such a judgment is not appealable, because allowing the parties to defer resolution of less than all causes of action by means of voluntary dismissal—subject to later reinstatement after the conclusion of the appeal—violated the "one final judgment rule."

Intermediate Court of Appeal decisions were split on the use of this practice to create appellate jurisdiction. The case arose in the context of a dispute between two doctors. Kurwa and Kislinger were ophthalmologists who formed a corporation for purposes of providing medical services to patients of an HMO that contracted with their joint corporate enterprise. Several years later, Kurwa's medical license was suspended. Kislinger notified the HMO that Kurwa's participation in the enterprise was terminated and that the agreed medical services would henceforth be performed solely by Kislinger's medical corporation. The HMO terminated its agreement with the parties' joint corporation and executed a new agreement with Kislinger's corporation. Kurwa sued Kislinger for breach of fiduciary duty and defamation. Kislinger cross-complained for defamation. Before trial began, the trial judge ruled in limine that neither party to the venture owed the other any "fiduciary" duty.

Kurwa conceded he could not proceed on his cause of action for breach of fiduciary duty and related claims, which would therefore be dismissed with prejudice, as would other counts Kurwa expressly "abandon[ed]." The parties, however, agreed to dismiss as well their respective defamation claims without prejudice and to waive the applicable statute of limitations. According to defense counsel, this would allow the parties to "test the issue" of fiduciary duty and "get a ruling" from the appellate court before disposing of the defamation claims. The trial court approved the stipulation, rendering "judgment" dismissing the breach of fiduciary duty claim with prejudice, and dismissing the defamation claim and cross-complaint "without prejudice."

The Court of Appeal's decision (Kurwa v. Kislinger, 204 Cal.App.4th 21 (2012)) began by addressing its jurisdiction to entertain Kurwa's appeal from the "judgment" on the breach of fiduciary duty claim. The court acknowledged that earlier decisions, beginning with Don Jose's Restaurant, Inc. v. Truck Ins. Exchange, 53 Cal.App.4th 115 (1997), had recognized the parties' agreement, holding some causes of action in abeyance for possible future litigation after an appeal from the trial court's judgment on others, renders the judgment interlocutory and precludes an appeal under the "one final judgment rule." Over Justice Kreigler's dissenting opinion, a majority of the Court of Appeal agreed the parties could permissibly dismiss a portion of their claims (subject to later reinstatement after the appeal of the fiduciary duty claim) consistent with the "one final judgment rule." Ultimately, the panel disagreed with the trial court's breach of fiduciary duty analysis, and reversed the judgment to remand that cause of action for trial, presumably after the re-filing of the parties' defamation claims. The California Supreme Court granted review.

According to the Supreme Court: "When, as here, the trial court has resolved some causes of action and the others are voluntarily dismissed, but the parties have agreed to preserve the voluntarily dismissed counts for potential litigation upon conclusion of the appeal from the judgment rendered, the judgment is one that 'fails to complete the disposition of all the causes of action between the parties' (Morehart, supra, 7 Cal.4th at p. 743) and is therefore not appealable."

The Court of Appeal was partially correct that causes of action the parties have dismissed without prejudice are no longer pending in the trial court, in the sense that no immediate action remains for the trial court to take on such counts. However, where the parties, by waiver or agreed tolling of the statute of limitations or a similar agreement, have arranged for those causes of action to be resurrected upon completion of the appeal, they remain "legally alive" in substance and effect. The rule of the lower court, under which a voluntary dismissal is considered to dispose of a cause of action regardless of any agreement facilitating its future litigation, elevates form over substance and permits parties to evade the "one final judgment rule" of section 904.1, subdivision (a), a device that the Don Jose's court aptly called an "artifice." (Don Jose's, supra, 53 Cal.App.4th at p. 116.)

The Supreme Court unequivocally approved the reasoning in Don Jose's and similar cases in rejecting the piecemeal resolution of multiple causes of action in order to craft a "final" judgment. In light of Kurwa, the parties' ability to manufacture appellate jurisdiction by means of such voluntary dismissals has been curtailed. A settlement agreement that allows an appeal to proceed on a dismissed cause of action, subject to reservation of other claims (depending on the outcome of the appeal), will not alter the status of a non-appealable interlocutory judgment. Only a judgment that results in complete disposition of all causes of action asserted in the trial court will qualify as a "final judgment" for the sake of the "one final judgment rule."